Australia FX broker DirectFX suspended by ASIC for compliance failures


Australia FX broker DirectFX suspended by ASIC for compliance failures

The Australian Securities and Investments Commission (ASIC) has just announced that it has suspended the Australian financial services (AFS) license of Direct FX Trading Pty Ltd (AFS license 305539) (Direct FX) for a minimum of ten weeks and up to six months, depending on whether key criteria are satisfied.

Direct FX Trading Pty Ltd operates the DirectFX Retail FX brand at directfx.com.

Direct FX’s AFS license was suspended after ASIC found:

  • Direct FX had failed to comply with its Net Tangible Asset (NTA) requirements outlined in Class Order 12/752, including not having sufficient cash and cash equivalents to comply with its requirements on multiple occasions;
  • Direct FX failed to comply with a s912C(3) Direction from 10 February until 12 April 2018 to give ASIC an audit report covering certain important matters, including information about Direct FX’s compliance with its financial obligations that would assist ASIC in making an assessment about Direct FX’s competence, attitude to compliance and financial soundness; and
  • Direct FX failed to replace key persons named on its license.

These failures to maintain financial soundness, comply with its duties and maintain competent key persons were likely to result in its compliance becoming increasingly less effective. Given the number and nature of the failures, ASIC had reason to believe that Direct FX is likely to contravene its general obligations as a licensee under s912A of the Corporations Act.

Cathie Armour

ASIC Commissioner Cathie Armour said:

Direct FX was in breach of important financial conditions of its AFS license aimed at protecting investors from the higher operational and credit risks posed by the retail OTC derivative sector. Direct FX also failed to replace key persons to ensure adequate organisational competence, supervision of financial services and compliance with Australian regulatory obligations. When ASIC was trying to conduct its enquiries, the entity did not cooperate in a timely and efficient fashion that we would expect of licensees, and failed to comply with ASIC directions.

ASIC found that Direct FX should not be allowed to carry on a financial services business until key person competency arrangements are adequately addressed and Direct FX has demonstrated compliance with the financial conditions attached to its AFS license. If these criteria are not satisfied by 17 October 2018, ASIC may consider further suspending or cancelling the AFS licence, subject to the usual procedural requirements.

ASIC also notes the suspension will affect the financial services provided by Direct FX’s authorised representative, Core Liquidity Markets Pty Ltd, to the extent that they are provided under authorisations granted under Direct FX’s license.

To minimise the impact of the suspension on its past and current clients, Direct FX will be:

  • required to maintain its membership of an external dispute resolution scheme and adequate professional indemnity Insurance; and
  • able to close out positions of existing clients.

DirectFX has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decision.

Background

On 10 October 2017, Direct FX reported a breach of s912AB(4)(b) of the Act to ASIC, relating to the requirement for Direct FX to have net tangible assets of $1,000,000. Since October 2017, ASIC has been reviewing Direct FX’s compliance with its financial obligations. As part of this review, ASIC required Direct FX to provide an audit report to ASIC by 9 February 2018 about its compliance with financial licence conditions. The audit report was provided to ASIC on 12 April 2018.

ASIC’s action against Direct FX continues the focus on the retail OTC derivative sector, including margin FX, CFDs and binary options. On 13 February 2018, ASIC obtained interim injunctions and warned investors against AGM Markets, OT Markets and Ozifin (Trade Financial).

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Australia FX broker DirectFX suspended by ASIC for compliance failures

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